Do you need a financial planner? What to know before seeking money advice

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Canadians looking for some help managing their money through uncertain times might wish to turn to a financial planner or advisor to guide decisions on everything from investments to getting out of debt.

But as complicated as planning your own finances can be, experts say it’s no simple task getting the right help, either.

“There’s still a lot of ambiguity, I find, with financial advisors in Canada to figure out what the heck they do,” says Jason Heath, managing director of Objective Financial Partners.

Heath, who is a certified financial planner (CFP), and other experts also say relying on outside advice might not be right for every household budget when the costs of financial planning itself are factored in.

Here’s how to decide if a financial planner is right for you, and how to navigate the market to find the right fit.

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Financial advisors vs. financial planners

There are many different types of financial guidance you can get, ranging from straightforward advice to hands-on management of your investments.

But the first distinction to be made is the difference between a financial advisor and a financial planner.

The Financial Consumer Agency of Canada (FCAC) differentiates the more general financial advisors, which could encompass anything from a bank employee to a stock broker to an insurance agent, from the more specific financial planner, which is a type of advisor who helps you make a plan for your long-term savings goals. Some financial planners may offer estate planning advice, tips on how to save money on taxes and retirement planning help.

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But the agency notes that anyone in Canada, outside of Quebec, can call themselves a financial planner or advisor, putting the onus on clients to figure out exactly what qualifications someone might have.

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Either role can come with certain certifications that Heath says it’s important to get clarified upfront, which is typically something you can check by searching an advisor or planner’s name in their provincial or territorial regulators.

CFPs are qualified to give general tips on tax-saving strategies. However, you may want to consult a Chartered Professional Accountant if you need specific advice.

Aside from CFPs like Heath, the FCAC notes two other common certifications are the Personal Financial Planner and Registered Financial Planner, which come with their own education and experience requirements. You can check each title’s requirements online.

Heath is also an advice-only planner, which means he doesn’t manage his clients’ money directly, nor does he sell them specific financial products.

Heath says the appeal of this approach to him is that he doesn’t feel bound to offer a particular product to solve a client’s money problems. If an advisor is only equipped to sell an insurance-based solution to a problem, they might end up steering someone down an unproductive path in the name of hitting sales quotas, he says.

“Most financial services people in Canada, because they’re paid based on the products they offer and sell, they can have motivations to recommend one course of action over another,” he says.

“I’ve chosen this course of action because … I can look my clients in their eyes and not feel like I’m taking advantage of them in any way or trying to make a sales pitch.”

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How are advisors and planners paid?

FCAC notes the way you pay your advisor depends on the service they provide. This could be an hourly fee for help creating a financial plan, a percentage based on the value of assets they manage for you or a commission fee if they buy a stock on your behalf.

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Heath and his ilk are paid on a fee-only model, which means they’re paid like a lawyer might be on a session-by-session basis or an hourly consultation rate.

Depending on the range of services and the expertise or typical clientele of your advisor or planner, hourly fees can range in the hundreds or thousands, Heath says.

For those already struggling to make ends meet, these costs can make using a financial planner prohibitive.

“Not everybody is going to be in a position where they are able to or wanting to write a check for financial advice,” he says.

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What’s more common for advisors who manage an investment portfolio might be a percentage-based fee derived from the proceeds of your return, says Shannon Terrell, lead writer and spokesperson for NerdWallet Canada.

Fees for portfolio managers can fluctuate but typically are between one and two per cent annually in Canada, she says.

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Terrell says that while this might not seem like a lot, the commission paid to managers is essentially taken off your investment gains, which even in a good year on the markets are often in the single digits themselves.

“Ultimately you need to consider, is that cost worthwhile to change your finances or your portfolio over to somebody else?”

Heath says that in the case of some independent portfolio managers, there’s often an investment minimum clients need to have on the books before an advisor will take them on. This can be as high as $250,000 and above, he says, which boxes out most Canadian households from this level of service.

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For those unable to pay fees for advice-based approaches, and for those unwilling to give up a portion of their investment returns or without sufficient cash to get started with an advisor, there are some cheaper and even free alternatives to consider.

Terrell says many financial advisors will offer a free consultation before asking you to sign agreements, which you can use to get a “better picture of your finances” and quick steps to get on track.

Heath says most banks and other financial institutions will have wealth advisors accessible to clients with even modest savings to start.

Banks have staff that can help you understand and purchase certain investment products like GICs and mutual funds or contribute to registered savings plans such as an RRSP or a TFSA, FCAC notes.

This advice is usually “accessible” for most Canadians, Heath says, but large institutions tend to have a lot of turnover in their ranks and clients might not end up with the same advisor for a long time.

Like independent experts, banks’ financial advisors can be hit or miss, Heath says, though he notes it’s possible to find a “hidden gem” working with your personal banking provider.

There are also some lower fee options for those looking to grow their money on their own through passive investments like exchange-traded funds managed via robo-advisors, though these options might come with little to no direct advice from a real person.

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How to find the right planner for you

Where you find a financial advisor — whether through a bank, stockbroker, insurance company or independent planning company — depends on the type of advice you need, FCAC says.

The consumer agency lists a number of places to start looking for advisors such as FP Canada, the Financial Advisors Association of Canada, the Institute of Financial Planners and the Investment Industry Regulatory Organization of Canada, among others.

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Finding the right financial planner is a bit like dating, Heath says: You want to find someone who’s reputable, has a personality fit and is the right person for the stage of life you’re in.

Some prefer their advisors to be older with a bit more experience, he says, while others prefer someone younger who can hopefully stick with them from early years through retirement.

If you’re considering working with someone you’ve found online or through word of mouth, Terrell recommends you “shop around” for a prospective advisor or planner to make sure they’re a fit in terms of both services and personality.

“I encourage people to enter into these conversations and conduct them almost like an interview,” she says. “Know your questions ahead of time. Come prepared to take notes and follow up on anything that seems unclear.”

The questions Heath and Terrell advise you to ask before committing to a particular advisor or planner include:

  • Do you provide advice or hands-on management of finances?
  • What are your certifications?
  • How are you paid in this relationship, and what is your fee structure?
  • Are there any minimum amounts needed to get started investing with you?
  • What kinds of clients do you typically work with?
  • How often do you meet with clients, and in what ways do you communicate?
  • How have portfolios that you’ve managed performed in the past?

The FCAC also has a list of questions you might want to ask an advisor, including whether they’ve ever been disciplined by a regulator or had restrictions placed upon their licences.

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Heath says some financial planners might try to win you over by criticizing your existing investments and promising lofty returns — this can be a “red flag,” he warns.

One of the biggest mistakes someone can make in choosing an advisor is not asking enough questions, Heath says.

He’s surprised when he hears from clients that they’re nervous about asking questions and potentially appearing dumb — a trend he finds is just as common with established professionals and older adults.

“I’m shocked, because it’s their money and they’re paying lots of fees to these individuals,” he says.

“You deserve to have your questions answered and you deserve to have an open and honest relationship.”

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Heath’s final advice applies whether you’re looking for outside financial help or you’re going it alone: educate yourself.

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For those who can’t afford or don’t see the value from a financial advisor or planner, there are many free or low-cost resources online today that can give you the basics you need to set yourself up for financial success, he says.

At the same time, if you leave all of your financial decisions up to a third party, you might not have the background you need to know when the advice you’re getting is serving them, not you.

“The most important thing that people can do, whether they’re young or they’ve got no money and they’ve got lots of it, is just educate yourself about finances,” Heath says.

“You’re going to be more informed, ask better questions, seek out better advice and see through the BS.”

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